Financial ratios at b.d.k. ltd. hubli project report

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Financial ratios at b.d.k. ltd. hubli project report

Financial ratios at b.d.k. ltd. hubli project report

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  • 1. BDK Process Control Pvt. Ltd.Contents:  Executive summary  Introduction  Purpose of the study  Scope of the study  Objectives of the study BABASAB PATIL 1
  • 2. BDK Process Control Pvt. Ltd. Executive summaryFinancial statements provide summarized view of the financial position and operation ofthe company. Many parties are interested in financial statement analysis to know aboutthe financial position of the firm. They include investors, creditors, lenders, suppliers etc.Ratio analysis is the widely used tool of financial analysis. It is the systematic use ofratios to interpret the financial statements so that the strengths and weaknesses of a firmis determined.Title: Analysis of financial performance on the basis of financial ratios at B.D.K.process control private Ltd. HubliProject consists of analysis of financial performance on the basis of financial ratiosThe study will reveal the financial performance of the firm which enables themanagement to know their financial strengths of the firm to make their best use. Study will also help to spot out financial weaknesses of the firm if any and to takesuitable corrective actions. The other objectives of this study are also find out liquidity position, profitability,efficiency of the B.D.K. Process Control Private Ltd. For this purpose balance sheet of recent three years is taken and analyzed with thehelp of various financial ratios. Based on this analysis, observations, given personnel will be takingcorrective actions to improve the performance. BABASAB PATIL 2
  • 3. BDK Process Control Pvt. Ltd.OBJECTIVES OF THE STUDY • Main Objective is to study the different ratios used in B.D.K Process Control Private Ltd. • To know the financial performance based on ratios. • To pinpoint the direction with which the organization is moving. • To know the financial position of the B.D.K. Process Control Private Ltd. • To know the liquidity position of the B.D.K. Process Control Private Ltd. • To assess the long-term viability of the firm. • To know the efficiency in the management and utilisation of its assets.Findings:  The company is enjoying the profit during the period of study.  Liquidity position of the company is increasing.  The company is having more internal funds.  The debtor collection period is increasing.  The company is enjoying better credit period.Suggestions:  The company has to reduce its investments in current assets.  The company has to maintain proper debt equity combination.  Company should improve its credit policy for the better management of credit and to earn more profit. BABASAB PATIL 3
  • 4. BDK Process Control Pvt. Ltd. ITRODUCTIONRatio analysis: Ratio analysis is a widely used tool of financial analysis. It is defined as thesystematic use of ratios to interpret the financial statements so that the strengths andweaknesses of a firm as well as its historical performance and current financial can bedetermined. The rationale of ratio analysis lies in fact that it makes related informationcomparable. A single figure by itself has no meaning but when expressed in terms ofrelated figure, it yields significant inferences.Meaning and definitionA Ratio is defined as “the indicated quotient of two mathematical expressions” and “asthe relationship between two or more things”.In financial analysis, a ratio is used as benchmark for evaluating the financial positionand performance of a firm. The term ratio refers to the numerical or quantitative relationship between twoitems/variables.This relationship can be expressed as: 1. Percentages 2. Fractions 3. Proportion of numbers BABASAB PATIL 4
  • 5. BDK Process Control Pvt. Ltd.Basis for comparisonComparison with related facts is, therefore, the basis of ratio analysis. Four types ofcomparisons are involved 1. Trend analysis 2. Inter-firm comparison 3. Comparison of items within a single year’s financial statement of the firm 4. Comparison with standards or plans Trends ratios involve a comparison of ratios of a firm over a time, that is, presentratios are compared with past ratios for the same firm. The inter-firm comparison involving comparison of ratios of firm with those ofothers in the same line of business or for the industry as a whole, reflects its performancein relation t its competitors. Other types of comparison may relate to comparison of items within a single year’financial statement of a firm and comparison with standards or plans.Types of ratios (Purpose-Wise classification):Ratios can be classified, for purposes of exposition, into three broad groups 1. Profitability ratios. 2. Turnover (activity) ratios. 3. Financial ratios BABASAB PATIL 5
  • 6. BDK Process Control Pvt. Ltd.1. Profitability RatiosPurpose: To indicate how successfully a firm is run.Interested parties:  Shareholders (actual and potential)  Potential takeover bidders  Lenders  Competitive firms  ManagementRatios to be used: 1) Gross Profit Ratio 2) Net Profit Ratio 3) Operating Expenses Ratio 4) Operating Profit Ratio 5) Return On Investment / Overall Profitability Ratio 6) Return On Equity 7) Return On Total Assets 8) EPS 9) DPS BABASAB PATIL 6
  • 7. BDK Process Control Pvt. Ltd.2.Turnover ratiosPurpose: To know the managerial efficiency, these ratios indicates profitability, use ofassets, capital structure analysis etc.Interested parties:  Shareholders (actual and potential)  Potential takeover bidders  ManagementRatios to be used: 1. Inventory stock turnover Ratio 2. Debtors (Accounts Receivable) Turnover Ratios. 3. Creditors (Account Payable) Turnover Ratios 4. Fixed Assets turnover Ratio 5. Current Assets turnover Ratio 6. Working capital turnover Ratio 7. Total Assets turnover Ratio 8. Net Assets turnover Ratio3. Financial RatiosPurpose: These ratios indicate short term and long-term liquidity and solvency of thefirm. These ratios indicate the ability of the firm to survive over a long period of timeafter meeting its commitment in the form of interest and maturing debts. BABASAB PATIL 7
  • 8. BDK Process Control Pvt. Ltd.Interested parties:  Short-term & long-term creditors  Banks & Debenture holders  Shareholders  ManagementRatios to be used: 1) Financial Ratio: Current Ratio Quick / Acid test / Liquid Ratio. Absolute liquid / Cash Ratio 2) Leverage Ratio: Debt ratio Debt equity Ratio Proprietary Ratio Interest coverage RatioIMPORTANCE AND LIMITATIONS OF RATIO ANALYSISIMPORTANCELiquidity Position: With the help of ratio analysis conclusions can be drawn regardingthe liquidity position of a firm. A firm can be said to have the ability to meet its short-term liabilities if it has a sufficient liquid funds to pay the interest on its short-maturing BABASAB PATIL 8
  • 9. BDK Process Control Pvt. Ltd.debt. This ability is reflected in the liquidity ratios of a firm. The liquidity ratios areparticularly useful in credit analysis by banks and other suppliers of short-term loans.Long-term Solvency: Ratio analysis is equally useful for assessing the long-termfinancial viability of a firm. This aspect of the financial position of a borrower is ofconcern to the long-term creditors, security analysis, and the present and potential ownersof the business. The long-term solvency is measured by the leverage/capital structure andprofitability ratios, which focus on earning power and operating efficiency.Operating Efficiency: Yet another dimension of the usefulness of ratio analysis, relevantfrom the viewpoint of management, is that it throws light on degree of efficiency in themanagement and utilization of its assets. The various activity ratios measure this kind ofoperational efficiency.Overall profitability: The outside parties, which are interested in one aspect of thefinancial position of a firm, the management is constantly concerned about the overallprofitability of the enterprise. That is, they are concerned about the ability of the firm tomeet its short-term as well as long-term obligations to its creditors, to ensure a reasonablereturn to its owners and secure optimum utilization of the assets of the firm.Inter-firm Comparison: One of the popular techniques is to compare the ratios of a firmwith the industry average. It should be reasonably expected that the performance of afirm should be in broad conformity with that of the industry to which it belongs. An inter-firm comparison would demonstrate the relative position vis-à-vis its competitors. BABASAB PATIL 9
  • 10. BDK Process Control Pvt. Ltd.Trend Analysis: It enables us to know whether the financial position of a firm isimproving or deteriorating over the years. This is made possible by the use of trendanalysis.LIMITATIONSIf companies ignore the impact of inflation or price level changes in the financialstatements or if financial statements are based on historical costs. Then it becomeslimitation of ratio analysis. Another problem is it depends on quality of financialstatements. For example: if there is no transparency / disclosure of real things in thestatements it becomes problem to analyst. But now days it doesn’t hold well. Because,every company has to disclose it’s information according to accounting standards, in theannual reports. BABASAB PATIL 10
  • 11. BDK Process Control Pvt. Ltd.Statement of the problem: The company wants analysis of its financial performance and compare itsperformance of past with the present performance with the help of ratio analysis, in orderto know the financial strengths of the firm to make their best use and to be able to spotout financial weaknesses of the firm.Research problem: To know the Financial Position of the company and its Liquidity Performancethrough comparing three years financial performance by applying different financialRatios.Purpose of the study:  The study will pinpoint the direction with which the organization is moving.  The study will also help to know the operating performance of the company.  The study will reveal the credit worthiness of an enterprise and financial position of the firm.Scope of the study:The scope of the study is conducted is only for organization level. It is done throughBalance Sheet of Company. For a period 2003-04, 2004-05, 2005-06 BABASAB PATIL 11
  • 12. BDK Process Control Pvt. Ltd.Objectives of the study: • Main Objective is to study the different ratios used in B.D.K Process Control Private Ltd. • To know the financial performance based on ratios. • To pinpoint the direction with which the organization is moving. • To know the financial position of the B.D.K. Process Control Private Ltd. • To know the liquidity position of the B.D.K. Process Control Private Ltd. • To assess the long-term viability of the firm. • To know the efficiency in the management and utilization of its assets. BABASAB PATIL 12
  • 13. BDK Process Control Pvt. Ltd.Contents:  Organization Profile  Organization chart  Research design  Data collection methods  Measuring tools BABASAB PATIL 13
  • 14. BDK Process Control Pvt. Ltd. COMPANY PROFILEFORMATION OF THE COMPANY Khimji’s first manufacturing plant, established in 1961, broke new ground forproviding a high-quality alternative to import of valves and pumps, while assuringavailability of spare parts and excellent services. Keeping pace with industrial growth, the B.D.K Group founded in 1978 byBharat B. Khimji, the (US $21 million Group has been building on heritage of initiativeand innovation at the service of industry, offering- along with its ten associate companies,a wide spectrum of Industrial valves and Industrial Process Pumps Designed for theneeds of chemical and Petrochemicals industries. In the year 1980 it has merged into one company with name B.D.K Group ofcompanies, which has B.D.K Process control Pvt. Ltd. Company. And in 1984 with nameB.D.K Engineering Industries is commenced. The company is located on 27 acres of land in Gokul road, Hubli. B.D.K ProcessControl Pvt. Ltd. is manufacturing the products like Diaphragm valves, Butterfly Valves,Plug valves, etc. B.D.K Engineering Industries Ltd. is manufacturing products like Globevalves, Check valves, Gate valves, Ball valves, etc. The company is mainly catering industries like chemical process industries,refineries, petrochemicals and fertilizer plants, oil corporation, thermal and nuclear powerplants, pharmaceuticals, food and beverage industries, water supply plant, miningindustries, etc. BABASAB PATIL 14
  • 15. BDK Process Control Pvt. Ltd.The company is selling its products in domestic as well as abroad market throughB.D.K. Marketing Services Pvt. Ltd. All over India it has 10 branches namely: Chennai,Mumbai, Culcutta, Delhi, Pune, Bangalore, Hydarabad, Baroda, Luknow, Indore.BOARD OF DIRECTORS* Mr. Bharat Kimji. (CEO & founder of B.D.K group of companies)* Mr. Sachin Kimji (Director Of Manufacturing)* Mr. Binoy Khimji, (Director - International Business.)* Mr. K. Sundaram (Corporate business)* Mr. M.B.Goudar (Domestic sales)* Mr. Srikant Kulkarni(Head Exports) BABASAB PATIL 15
  • 16. BDK Process Control Pvt. Ltd.ORGANIZATIONAL OBJECTIVES AND QULITY POLICY:The name B.D.K is synonymous with quality. The objective of the organization is welldefined in the companies’ quality policy, which is as underVision: “To be the most admired company in the production of valves industry.”Mission: “To design, to manufacture to market quality product at competitive prices tothe entire satisfaction of the customer and market leadership.”Quality policy: “The quality policy shall be to design to manufacture to market qualityproducts at competitive prices to the entire satisfaction of the customer and to attainmarket leadership”Organizational objectives:  To strive for excellence in quality of their products in national and international market and to be recognized as leading players.  To develop necessary competence at al levels of operations and improves the process, products and services to sustain quality reputation. BABASAB PATIL 16
  • 17. BDK Process Control Pvt. Ltd.  To seek participation of employees at all levels of operation and to form a motivated team where they treat each other with mutual trust and respect.  To shoulder social responsibility by maintaining a safe, clean and hygienic environment.PRODUCTS OF B.D.K. GROUP OF COMPANIESBDK Group from India manufactures and exports largest range of valves, pumps andother chemical industry products for all process handling needs.Valves OthersDiaphragm PTEE lined pipeButterfly ActuatorsPfa lined Auto FiltersGateGlobeCheckBallForged steelKnife Edged GateProduction capacity:BDK has an annual production capacity of manufacturing • 100,000 Diaphragm and Butterfly Valves; BABASAB PATIL 17
  • 18. BDK Process Control Pvt. Ltd. • 10,000 Cast Steel Gate, Globe & Check Valves; • 50,000 Plug Valves; • 80,000 Ball Valves; • 80,000 Forged Steel Gate, Globe & Check Valves; • 10,000 Special Purpose Valves • 10,000 Custom-made Valves • 5000 Process pumps. BDKs speciality, along with a wide-ranging product line, is to manufacture Special Valves in Exotic materials.STRENGTHAt BDK, People are selected and developed as rigorously as components in a complexpiece of engineering - as in a way they are. Because its their individual performance thatadds up to the superior functioning of the entire organization and its various activities(manufacturing, finance, marketing, research / development and HRD). More than800 well-qualified engineers, technicians and administrative personnel bring theirexperience and skills to the requirements of the full developmental life cycle. Continuousupdating ensures a spirit of constant learning at BDK, that skills and knowledge are intune with the time and more than equal to todays demands.NEW DEVELOPMENTS BABASAB PATIL 18
  • 19. BDK Process Control Pvt. Ltd.New ProductsInnovation, Reinvention and Diversification are a continuous process at BDK.Be it a new product development or enhancement of older products, we at BDK areconstantly striving to give our customers maximum value for their investment, widestproduct range and most complete solutions.Over the last few years BDK has been introducing new products on a regular basis, steamtraps, strainers, air release valves and air filters to name a few. We are on the constantlook for innovative products that complement the BDK Range. With our well-establishednetwork of sales offices and leading industry clientele, we have been able to successfullybranch out and gain product acceptance for various ancillary products.Travel InnFrom a traditional manufacturing company, BDK has diversified into the Hotel Industryby introducing its first 36-room hotel on the outskirts of HUBLI. Complete with open-airrestaurant, bar, banquet facilities to conference facilities Travel Inn provides thenecessary amenities for both the Business and Holiday traveler.Pick N PayThe FMCG market is growing at an annual rate of 8% over the last 5 years and it isestimated to keep growing over at the same pace for the next decade. With a growingneed for a one-stop shop convenience store, BDK recently launched two of the largestsuper market stores in HUBLI. Under the brand name of PICK N PAY, BDK has takenits first step in to FMCG industry in India. The future plans are to franchise the PICK NPAY brand name to different parts of India and establish itself as a leader in the supermarket industry. BABASAB PATIL 19
  • 20. BDK Process Control Pvt. Ltd.KnownetMultiple skills and competencies combine to realize technology-driven businesstransformation. As organizations constantly strive to iterate their business and ITstrategies, Knownet’s well-honed capabilities and methodologies for IT servicescomplement our business consulting services to define, optimize and align our clientsbusiness strategy with technology initiatives.Knownet is one of the premier solution providers of India. Our business interests varyinto a wide gamut of activities ranging from Web Solutions, ERP Solutions, E-businessApplications, CRM solutions, and IT Consultancy. Our portfolio of services has helpedindustry sectors like Shipping, Entertainment, Pharma, Manufacturing Logistics andFinancial Institution. BABASAB PATIL 20
  • 21. BDK Process Control Pvt. Ltd. B.D.K. PROCESS CONTROL PRIVATE LIMITED B.D.K. process control Pvt. Ltd., commenced its business in 1980 it is thelargest manufacturer of diaphragm, butterfly and plug valves in the country and themarket leaders. The company has grown steadily and its actual production during the year2004-2005 it was 84,247 units, and it was raised to 92589 units during the year2005-2006. B.D.KPC has a documented quality system to meet the requirements ofISO:9001/1994 to ensure that its orders processed, products produced and servicesrendered meet the customer requirements. The unit has already accelerated to ISO9001/1994 quality assurance standards by M/S. RWTUV.Name : B.D.K.PC Pvt. Ltd.Constitution : Pvt. LimitedSales Head Quarters : HubliRegistered office : MumbaiMarketing Agents : B.D.K marketing services Pvt. Ltd.Departments of B.D.K.PC Pvt. Ltd.: B.D.K. Process Control Private Ltd. mainly has 7 departments. For eachdepartment, duties, responsibilities and authorities are assigned accordingly for thesmooth running of all the activities. BABASAB PATIL 21
  • 22. BDK Process Control Pvt. Ltd.Different departments are listed below: 1. Time office 2. Sale Co-Ordination 3. Production Planning and Control 4. Design and Development 5. Materials and Stores 6. Accounts 7. Quality Assurance BABASAB PATIL 22
  • 23. BDK Process Control Pvt. Ltd. ORGANIZATION CHART BDK GROUP OF COMPANI ES BDK BDK BDK BDK Process BDK Travel Inn Engineering Marketing control Sports And Industries Services Private Foundation Pick and Limited Limited Limited Pay Production Design and SalesTime Quality Planning Developmen Material Accounts CoordinatioOffice Assurance And t Dept. Dept. nDept. Dept. Control Dept. Dept. Dept. ORGANIZATION STRUCTURE OF ACCOUNTS DEPARTMENT Executive Director ASST. Finance Manager Accounts Officer Assistant Accountant Assistant Accountant Staff Staff Staff Staff BABASAB PATIL 23
  • 24. BDK Process Control Pvt. Ltd.DESIGHN OF THE STUDYTitle of the project:“A study report on analysis of financial performance on the basis of financial ratioat B.D.K. Process Control Private Ltd.”Statement of the problem: The company wants analysis of its financial performance and compare itsperformance of past with the present performance with the help of ratio analysis, in orderto know the financial strengths of the firm to make their best use and to be able to spotout financial weaknesses of the firm.Research problem: To know the Financial Position of the company and its Liquidity Performancethrough comparing three years financial performance by applying different financialRatios.Purpose of the study:  The study will pinpoint the direction with which the organization is moving.  The study will also help to know the operating performance of the company.  The study will reveal the credit worthiness of an enterprise and financial position of the firm.Objectives of the study: • Main Objective is to study the different ratios used in B.D.K Process Control Private Ltd. • To know the financial performance based on ratios. BABASAB PATIL 24
  • 25. BDK Process Control Pvt. Ltd. • To pinpoint the direction with which the organization is moving. • To know the financial position of the B.D.K. Process Control Private Ltd. • To know the liquidity position of the B.D.K. Process Control Private Ltd. • To assess the long-term viability of the firm. • To know the efficiency in the management and utilization of its assets.Scope of the study:The scope of the study is conducted is only for organization level. It is done throughBalance Sheet of Company. For a period 2003-04, 2004-05, 2005-06.Data collection method: The information necessary for this survey is collected by tapping primary & secondarysource: Primary sources: - Personal interviews with the officials of BDKPC Ltd. Secondary sources: - 1) Annual reports of the BDKPC Ltd. 2) Related information from Internet. 3) Books and Publications.Measuring tool:  Accounting Ratios.  Financial Statements of the Company BABASAB PATIL 25
  • 26. BDK Process Control Pvt. Ltd.Limitations of the study:  Researcher has taken only 3 years data of base for the analysis. Since, time is shorter in nature, it lacks in complete evaluation of the firm.  The study is largely depending on secondary data, like Profit and Loss account, and Balance Sheet of the B.D.K. Process Control Private Ltd. For the related years. BABASAB PATIL 26
  • 27. BDK Process Control Pvt. Ltd.Contents:  Result &discussion with Charts & graphs  Suggestions  Conclusion BABASAB PATIL 27
  • 28. BDK Process Control Pvt. Ltd. ANALYSIS OF PROFITABILITY RATIOS OF THE COMPANYBABASAB PATIL 28
  • 29. BDK Process Control Pvt. Ltd.1.Profitability Ratios: Apart from the creditors, short-term and long-term, also interested in the financialsoundness of a firm are the owners and management of the company itself. Themanagement of the firm usually eager to measure its operating efficiency. Similarly, theowners invest their funds in the expectation of reasonable return. The operatingefficiency of a firm and its ability to ensure adequate return to its shareholders dependsultimately on the profits earned by it. The profitability of a firm can be measured by itsprofitability ratios.Profitability ratios are: 1) Gross Profit Ratio 2) Net Profit Ratio 3) Operating Expenses Ratio 4) Operating Profit Ratio 5) Return On Investment / Overall Profitability Ratio 6) Return On Equity 7) Return On Total Assets 8) EPS 9) DPS BABASAB PATIL 29
  • 30. BDK Process Control Pvt. Ltd. 1. GROSS PROFIT MARGIN RATIO:-Gross profit is the difference between sales and the manufacturing cost of goods sold.And gross profit is compared with the sales. Gross profit margin ratio reflects theefficiency with which management produces each unit of product. This ratio indicates theaverage spread between the cost of goods sold and sales revenue. A high gross profit ratiois sign of goods management and implies that the firm is able to produce at relativelylower cost.A low gross profit margin reflects higher cost of goods sold due to  Reduction in selling price  Inefficient utilization of plant and machinery etc. It is calculated as follows: Gross profit ratio= Sales-Cost of Goods Sold ____________________ Net Sales. = Gross Profit * 100 ___________ Net Sales GROSS FROFIT RATIO (Amount in Lakhs)Year 2003-04 2004-05 2005-06Gross profit 798.17 561.11 424.39Net Sales 1452.57 2026.13 2689.94Gross Profit Ratio (%) 29.217 27.693 29.672SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 30
  • 31. BDK Process Control Pvt. Ltd. Gross Profit Ratio (%) 30 29.672 29.5 29.217 29 Percentage 28.5 Gross Profit Ratio (%) 28 27.693 27.5 27 26.5 2003-04 2004-05 2005-06 YearInterpretation: The table reveals that the ratio of gross profit to sales, the gross profitmargin has varied in the range of 27.693% to 29.672% during the period of study. Theratio is quite constant and also it is increased in the year 2005-06, indicates the efficiencyof management in manufacturing and trading operations.2.NET PROFIT MARGIN RATIO OF TELCONThis ratio is also known as net margin. This measures the relationship between net profitand sales of a firm. Depending on the concept of net profit employed, it is calculated asfollows = Profit (loss) after tax ___________________ * 100 Net SalesThis ratio indicates company’s capacity to withstand adverse economic conditions. BABASAB PATIL 31
  • 32. BDK Process Control Pvt. Ltd.A company with high net margin ratio would ensure adequate return to the owners aswell as enable a firm to withstand adverse economic condition when selling price isdeclining, cost of production is rising and demand for the product is falling.It would really be difficult for a low net margin ratio company to withstand theseadvantageous. NET PROFIT RATIO (Amount in Lakhs)Year 2003-04 2004-05 2005-06Profit (loss) After Tax 58.52 97.93 205.89Net Sales 1452.57 2026.13 2689.94Net Profit Ratio (%) 4.030 4.833 7.654SOURCE: ANNUAL REPORTS OF COMPANY Net Profit Ratio (%) 9 7.654 8 7 6 Percentage 4.833 5 4.03 Net Profit Ratio (%) 4 3 2 1 0 2003-04 2004-05 2005-06 YearInterpretation: The net profit of BDKPC Pvt. Ltd. in 2003-04 is 4.030%, and in the year2004-05 it is increased to 4.833% and again in the year 2005-06 it is increased to 7.654%. BABASAB PATIL 32
  • 33. BDK Process Control Pvt. Ltd.Therefore Net Profit Ratio is Satisfactory. Indicates the company’s efficient managementin manufacturing, administrating and selling the products. The BDKPC Pvt. Ltd. is having an advantageous position and economic conditionof the firm is good.3.OPERATING PROFIT RATIOThis ratio is calculated as follows:= EBIT ______ * 100 Net sales OPERATING PROFIT RATIO (Amount in Lakhs)Year 2003-04 2004-05 2005-06EBIT 63.52 144.51 368.59Net Sales 1452.57 2026.13 2689.94Operating Profit Ratio (%) 4.372 7.132 13.702SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 33
  • 34. BDK Process Control Pvt. Ltd. Operating Profit Ratio (%) 16 13.702 14 12 10 Percentage 8 7.132 Operating Profit Ratio (%) 6 4.372 4 2 0 2003-04 2004-05 2005-06 YearInterpretation: This ratio of Operating Profit in BDKPC Pvt. Ltd., in the year 2003-04 is4.372% and it is increased in the year 2004-05 to 7.132% and further it is increased to13.702% in the year 2005-06. The ratio is increased for all the three subsequent years.This ratio indicates the company’s operating performance is good in all the three years.4. RETURN ON INVESTMENT (ROI):It is also called as overall profitability ratio or Return on capital employed (ROCE) Ratio.This ratio is the broadest measure of the overall performance of business firm. It indicatesthe percentage of return on the total capital employed in the business. The higher ratio,the more efficient use of the capital employed. It is calculated on the bases of thefollowing:ROI = Operating Profit OR PBIT _______________ * 100 ________________ * 100 Capital employed Capital employed RETURN ON INVESTMENT RATIO BABASAB PATIL 34
  • 35. BDK Process Control Pvt. Ltd. (Amount in Lakhs)Year 2003-04 2004-05 2005-06PBIT 63.52 144.51 368.59Capital Employed 689.46 787.40 1185.00Return On Investment Ratio (%) 9.213 18.352 31.10SOURCE: ANNUAL REPORTS OF COMPANY Return On Investment Ratio (%) 35 31.1 30 25 Percentage 20 18.352 Return On Investment Ratio (%) 15 9.213 10 5 0 2003-04 2004-05 2005-06 YearInterpretation: In 2003-04 the ROI was 9.213 %, in the year 2004-05 it increases to18.352 %, and in the year 2005-06 it moves to 31.10 %. The return on investment ratio isincreased in all the 3 years. It means here the company had use the capital employedefficiently.5. RETURN ON EQUITY (ROE) / NET WORTHReturn on Equity is calculated to see the profitability of owner’s investment.Return on Equity = PAT BABASAB PATIL 35
  • 36. BDK Process Control Pvt. Ltd. ____________________________ * 100 Shareholder’s Equity or Net worthReturn on Equity indicates how well the firm has used the resources of owners. This ratioreflects the extent to which this objective has been accomplished. This ratio is of greatinterest to the present as well as the prospective shareholders and also of great concern tomanagement, which has the responsibility of maximizing the owner’s welfare. RETURN ON EQUITY (Amount in Lakhs)Year 2003-04 2004-05 2005-06PAT 58.52 97.93 205.89Net Worth 441.75 539.69 745.51 Return On Equity Ratio (%) 13.247 18.145 27.617SOURCE: ANNUAL REPORTS OF COMPANY Return On Equity Ratio (%) 30 27.617 25 20 18.145 Percentage 15 13.247 Return On Equity Ratio (%) 10 5 0 BABASAB PATIL 2003-04 2004-05 2005-06 36 Year
  • 37. BDK Process Control Pvt. Ltd.Interpretation: In 2003-04 the return on investment was 13.247%. It increases to18.145% in the year 2004-05. And it further increases to 27.617%. It indicates thatmanagement has used the resources of owners very effectively. Therefore in the year2005-06 company incurred profit. The ratio is high. In addition, there is substantialincrease in all the 3 years.6. RETURN ON TOTAL ASSETS (ROTA)This ratio is compared to know the ‘Productivity of the total assets’. There are twomethods of computing Return on Total Assets1. ROTA= PAT ___________ * 100 Total Assets2. ROTA= PAT + Interest _______________ * 100 Total Assets RETURN ON TOTAL ASSETS (Amount in Lakhs)Year 2003-04 2004-05 2005-06PAT 58.52 97.93 205.89Total Assets 1146.84 1174.41 1649.72Return On Total Assets Ratio (%) 5.102 8.338 12.480SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 37
  • 38. BDK Process Control Pvt. Ltd. Return On Total Assets Ratio (%) 14 12.48 12 10 8.338 Percentage 8 Return On Total Assets Ratio 5.102 (%) 6 4 2 0 2003-04 2004-05 2005-06 YearInterpretation: In 2003-04 the return on assets was 5.102 %. It increases to 8.338 % inthe year 2004-05. And it further increases to 12.480 %. It indicates that management hasused assets very effectively. Therefore in the year 2005-06 company incurred profit. Theratio is high. In addition, there is substantial increase in all the 3 years.7.EARNING PER SHARE (EPS):It measures the profit available to the equity shareholders on a per share basis, that isamount that they can get on every share held. It is calculated by dividing the profitsavailable to the shareholders by the number of the outstanding shares. The profitsavailable to the ordinary shareholders are represented by net profit after taxes andpreference dividend. The overall profitability can also be judged by calculating EPS.EPS is calculated by following formula:EPS = PAT BABASAB PATIL 38
  • 39. BDK Process Control Pvt. Ltd. ___________________ Number of Equity Shares EARNINGS PER SHARE (Amount in Lakhs)Year 2003-04 2004-05 2005-06PAT 58.52 97.93 205.89NO. Of Equity Shares 2999510 2999510 2999510Ratio 1.951 3.265 6.865SOURCE: ANNUAL REPORTS OF COMPANY Ratio 8 6.865 7 6 5 Percentage 4 3.265 Ratio 3 1.951 2 1 0 2003-04 2004-05 2005-06 Year BABASAB PATIL 39
  • 40. BDK Process Control Pvt. Ltd.Interpretation: EPS of Company in 2003-04 is Rs. 1.951, which increases to Rs. 3.265in the year 2004-05. And further it increases to Rs. 6.865 in the year 2005-06 due toincrease in profit, EPS is increased.NOTES:  Net sales= Gross Sales –Excise  COGS= (Op. stock +Purchases of products +Consumption of Raw materials & components + consumption of stores spares, tools + freight, transportation, port charges + Power and fuel. ) – Closing Stock..  Gross Profit= Net Sales – COGS  Total Assets= Fixed Assets + Current Assets.  Net Worth= Capital + Reserves and surplus.  COGS= Cost Of Goods Sold ANALYSIS BABASAB PATIL 40
  • 41. BDK Process Control Pvt. Ltd. OF TURNOVER RATIOS OF THE COMPANY TURNOVER / ACTIVITY RATIOS OF THE COMPANYIntroduction:Activity ratios are employed to evaluate the efficiently with which the firm manages andutilizes its assets. These ratios are also called as turnover ratio. Therefore they indicatethe speed with which assets are being converted / turned over in to sales.Thus an activity ratio involves relationship between sales and assets. A proper balancebetween sales and assets generally reflects that assets are managed well. BABASAB PATIL 41
  • 42. BDK Process Control Pvt. Ltd.In other words, turnover ratio indicates the efficiency with which the capital employed isrotated in the business.Higher the ratio of rotation, the greater will be the profitabilityDIFFERENT TURNOVER RATIOS: 1) Inventory stock turnover Ratio 2) Debtors (Accounts Receivable) Turnover Ratios. 3) Creditors (Account Payable) Turnover Ratios. 4) Fixed Assets turnover Ratio 5) Current Assets turnover Ratio 1. INVENTORY / STOCK TURNOVER RATIO (ITR/STR).It indicates the efficiency of firm in producing and selling its products. High Ratio isgood from the view point of liquidity and vice versa.A low ratio would signify that inventory does not sell fast and stably in the warehouse fora longtime.It is calculated as follows:Cost of Goods Sold OR Sales (If there is no opening stock)________________ __________Avg. Inventory Closing StockHence Avg. Inventory = Opening Stock + Closing Stock ____________________________ 2Avg. Inventory is calculated by taking stock levels of raw materials, working process andfinished goods at the beginning of year & at the end of the year & that is divided by two BABASAB PATIL 42
  • 43. BDK Process Control Pvt. Ltd. INVENTORY TURNOVER RATIO (Amount in Lakhs)Year 2003-2004 2004-2005 2005-2006COGS 1028.18 1465.02 1891.77Average Inventory 282.01 237.09 224.34Inventory Turnover Ratio 3.645 6.179 8.432SOURCE: ANNUAL REPORTS OF COMPANY Inventory Turnover Ratio 9 8.432 8 7 6.179 6 Percentage 5 3.645 Inventory Turnover Ratio 4 3 2 1 0 2003-04 2004-05 2005-06 Year INVENTORY CONVERSION RATIOYear 2003-04 2004-2005 2005-2006No. of days in year 365 365 365 BABASAB PATIL 43
  • 44. BDK Process Control Pvt. Ltd.ITR 3.645 6.179 8.432Days 100.137 59.071 43.284SOURCE: ANNUAL REPORTS OF COMPANYInterpretation:The STR/ ITR are high in all three years. And Stock conversion is very fast becausecompany takes 101 days in 2003-04. It decreases in 2004-05 to 60 days. And in 2005-06it is 44 days. It indicates that conversion ratio is very fast. And the company’s utilizationof inventories in generating sales is good. 2. DEBTORS TURNOVER RATIO:Debtors constitute an important constituent of current assets and therefore the quality ofdebtors to great extent determines that firm’s liquidity. There are two ratios. They are: 1) Debtors turnover Ratio 2) Debtors collection period RatioDebtor’s turnover can be calculated by dividing total sales by balance of debtors.Debtors turnover = Sales ______ DebtorsHigher the ratio is better, since it indicate that debts are being collected more promptlyDEBTOR’S COLLECTION PERIOD:This ratio indicates the extent to which the debts have been collected in time. It gives theaverage debt collection period. The higher is the turnover ratio and shorter is the average BABASAB PATIL 44
  • 45. BDK Process Control Pvt. Ltd.collection period the better is the trade credit management and the better is the liquidityof debtors, as short collection period and high turnover ratio imply prompt payment onthe part of debtors. On the other hand, low turnover ratio and long collection periodreflects that payments by debtors are delayed.Debtors Collection Period = No. of days __________ DTR DEBTOR’S TURNOVER RATIO (Amount in Lakhs)Year 2003-04 2004-2005 2005-2006Net Sales 1452.57 2026.13 2689.94Debtor’s 291.98 262.39 515.56Debtors Turnover Ratio 4.974 7.721 5.2175Debtors collection Period (Days) 73.38 47.26 70.79SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 45
  • 46. BDK Process Control Pvt. Ltd. Debtors Turnover Ratio 9 7.721 8 7 6 5.2175 4.974 Percentage 5 Debtors Turnover Ratio 4 3 2 1 0 2003-04 2004-05 2005-06 YearInterpretation: The ratio is fluctuating between the range of 4.974 to 7.721. In the year2003-04 ratio is 4.974 times which is increased to 7.721 times in the year 2004-05. But inthe year 2005-06 ratio is decreased to 5.2175. And hence the debtor’s collection period is74 days in 2003-04, and decreased to 47 days. But in the year 2005-06 it again increasedto 71 days although it is satisfactory as compared to the company’s credit policy.3) CREDITOR’S TURNOVER RATIO:It indicates the speed with which the payment for credit purchases is made to creditors.This ratio is calculated as follows:=Credit Purchases ______________Avg. creditorIt details regarding credit purchases, opening and closing A/c payable have not beengiven, and the ratio may be calculated as follows:= Total purchase _____________ Creditors BABASAB PATIL 46
  • 47. BDK Process Control Pvt. Ltd. CREDITORS TURNOVR RATIO (Amount in Lakhs)Year 2003-04 2004-05 2005-06Total Purchases 956.61 1364.27 1808.25Creditors 291.98 262.39 515.56Creditors Turnover Ratio 3.276 5.199 3.507Days 111.416 70.205 104.077SOURCE: ANNUAL REPORTS OF COMPANY Creditors Turnover Ratio 6 5.199 5 4 3.507 3.276 Percentage 3 Creditors Turnover Ratio 2 1 0 2003-04 2004-05 2005-06 YearInterpretation: Credit paid after 112 days in the year 2003-04, which is decreased to 71days in the year 2004-05, again in the year 2005-06 it is increased to 105 days. Which BABASAB PATIL 47
  • 48. BDK Process Control Pvt. Ltd.indicating they are enjoyed more credit period in 2003-04 and 2005-06 as compared tothe year 2004-05.4) FIXED ASSETS TURNOVER RATIOThis ratio indicates the extent to which the investments in fixed assets contributedtowards sales. If compared with a previous period, it indicates whether the investment infixed assets has been judicious / not.The ratio is calculated as follows:= Cost of Goods Sold _________________ Net Fixed Assets FIXED ASSETS TURNOVER RATIO (Amounts in Lakhs)Year 2003-04 2004-05 2005-06COGS 1028.18 1465.02 1891.77Fixed Assets 375.02 370.51 414.18Fixed Assets Turnover Ratio 2.741 3.954 4.567 SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 48
  • 49. BDK Process Control Pvt. Ltd. Fixed Assets Turnover Ratio 5 4.567 4.5 3.954 4 3.5 Ratio in Times 3 2.741 2.5 Fixed Assets Turnover Ratio 2 1.5 1 0.5 0 2003-04 2004-05 2005-06 YearInterpretation: In all the three years the fixed assets turnover ratio is increased. Whichindicates that fixed assets are properly utilized i.e. there is a better efficiency in utilizationof fixed assets.5) CURRENT ASSETS TURNOVER RATIO:This ratio indicates the extent to which the investment in current assets contributedtowards sales. If the ratio is compared with a previous period, it indicates whether theinvestment ion current assets has been judicious or nor. The ratio is calculated bydividing the cost of goods sold to Avg. current assets. The ratio is calculated as follows:= Cost of Goods Sold __________________ BABASAB PATIL 49
  • 50. BDK Process Control Pvt. Ltd. Current Assets CURRENT ASSETS TURNOVER RATIO (Amounts in Lakhs)Year 2003-04 2004-05 2005-06COGS 1028.18 1465.02 1891.77Current Assets 727.32 762.73 1188.67Current Assets Turnover Ratio 1.413 1.920 1.591SOURCE: ANNUAL REPORTS OF COMPANY Current Assets Turnover Ratio 2.5 1.92 2 1.591 Ratio in Times 1.413 1.5 Current Assets Turnover Ratio 1 0.5 0 2003-04 2004-05 2005-06 Year BABASAB PATIL 50
  • 51. BDK Process Control Pvt. Ltd.Interpretation: Current assets turnover ratio is increased in first two years but in2005-06 there is a slight decrease in the ratio due to the increase of current assets. But itis more than one in all cases. It indicates that the current assets are promptly investedtowards making sales. ANALYSIS OF BABASAB PATIL 51
  • 52. BDK Process Control Pvt. Ltd. FINANCIAL RATIOS OF THE COMPANY FINANCIAL RATIOS OF THE COMPANYIntroduction:Financial ratios indicate about the financial position of the company. A company isdeemed to be financially sound, if it is in position to carry on its business smoothly andmeet all its obligations both long- term as well as short- term without strain. Thus,company financial position has to be judged from two angles long- term as well as short-term. 3) Financial Ratio:  Current Ratio BABASAB PATIL 52
  • 53. BDK Process Control Pvt. Ltd.  Quick / Acid test / Liquid Ratio.  Absolute liquid / Cash Ratio 4) Leverage Ratio :  Debt ratio  Debt equity Ratio  Proprietary RatioLIQUIDITY RATIOLiquidity ratios may be defined as financial ratio, which thorough tight on short termslovenly of firm.Liquidity Ratio measures the ability of the firm to meet its current obligations. Liquidityratio needs establishing a relationship between cash and other current assets to currentobligations to provide quick measures of liquidity. A firm should ensure that it doesn’tsuffer from lack of liquidity and also that it does not have excess liquidity. Failure of acompany to meet its obligations due to lack of sufficient liquidity, will result in a poorcreditworthiness, loss of creditor’s confidence.Liquidity is perquisite for the survival of firm. The short-term creditors of firm areinterested in short-term solvency / liquidity of firm. But liquidity implies from theviewpoint utilization of funds of the firm, that funds are idle or they even very little.So liquidity ratio measure ability of a firm to meet its short- term obligations and reflectshort- term financial strength / solvency of firm.1) CURRENT RATIO: BABASAB PATIL 53
  • 54. BDK Process Control Pvt. Ltd.This ratio is an indicator of firm’s commitment to meet its short- term liabilities. Higherratio, better the coverage, 2:1 ratio is treat as standard ratio. This ratio is also called assolvency / working capital ratio.The current ratio is the ratio of the current assets and current liabilities. It is calculated bydividing current assets by current liabilities. Current Ratio= Current assets Current liabilitiesThe current ratio is a measure of short- term solvency of the company. It indicates therupee of current assets available for each rupee of current liability. The higher the currentratio the larger the amount of rupees available per rupee of current liability and thegreater the safety of the short- term creditors. This margin of safety to the creditors isessential due to the unevenness of the flow of funds through current assets and currentaccount. The current liabilities can be settled by making the payment whereas the currentassets available to liquidate them are subject to shrinkage of various reasons likeobsolescence of inventory, bad debts, and unexpected losses and so on. Thus current ratiorepresents the short- term liquidity “Buffer”. CURRENT RATIO (Amount in Lakhs)Year 2003-04 2004-2005 2005-2006Current Assets 727.32 762.73 1188.67Current Liabilities 418.51 387.04 433.12Current Ratio 1.737 1.970 2.744SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 54
  • 55. BDK Process Control Pvt. Ltd. Current Ratio 3 2.744 2.5 1.97 Ratio in Times 2 1.737 1.5 Current Ratio 1 0.5 0 2003-04 2004-05 2005-06 YearInterpretation: The ratio is quite good in first two years, when compared with theconventional standard 2. But in the year 2005-06 current ratio is high which indicatesthere will be an excess liquidity in the year 2005-06, which is quite dangerous hencecompany should minimize its investments in current assets.2) QUICK / ACID TEST / LIQUID RATIO:Liquid ratio is indication of availability of quick assets to honor its immediate claims.Higher the ratio betters the coverage. And the standard ratio is 1:1.An asset is liquid if is can be converted into cash immediately without loss of value.Hence cash is most liquid assets after assets which are considered to be relatively liquidare; Debtor’s balance, marketable securities etc. inventories considered to be less liquidtherefore they require some time form relishing into cash and their value also hastendency to fluctuate.The ratio is calculated as follows: BABASAB PATIL 55
  • 56. BDK Process Control Pvt. Ltd.= Quick Assets ________________________ Current Liabilities QUICK / ACID TEST / LIQUID RATIO (Amount in Lakhs)Year 2003-04 2004-2005 2005-2006Quick Assets 363.36 498.25 787.89Current Liabilities 418.57 387.04 433.12Quick Ratio .868 1.287 1.819SOURCE: ANNUAL REPORTS OF COMPANY Quick Ratio 2 1.819 1.8 1.6 1.4 1.287 Ratio in Times 1.2 1 0.868 Quick Ratio 0.8 0.6 0.4 0.2 0 2003-04 2004-05 2005-06 YearInterpretation: The ratio is moderate in first two years when compared with theconventional standard 1:1, which is quite satisfactory. But in the year 2005-06 the ratio is BABASAB PATIL 56
  • 57. BDK Process Control Pvt. Ltd.increased and it is high indicates the company has the excess liquidity which isdangerous.3) CASH / ABSOLUTE LIQUID RATIO:It calculated as follows:= Cash + Bank Balance _____________________ Current LiabilitiesHere, trade investment; marketable securities are equivalent of cash. And therefore theymay be included in the computation of cash ratio. The standard rate for this ratio 0.5:1.This ratio also indicates liquidity position and company and firms commitment to meetits short -term liabilities. CASH / ABSOLUTE LIQUID RATIO (Amount in Lakhs)Year 2003-04 2004-2005 2005-2006Cash +Bank Balance 17.59 171.37 201.86Current Liabilities 418.57 387.04 433.12Cash Ratio .042 .442 .466SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 57
  • 58. BDK Process Control Pvt. Ltd. Cash Ratio 0.5 0.466 0.442 0.45 0.4 0.35 Ratio in Times 0.3 0.25 Cash Ratio 0.2 0.15 0.1 0.042 0.05 0 2003-04 2004-05 2005-06 YearInterpretation: Cash ratio is much less than the conventional standard of 0.5:1 in2003-04. But in next two years it is increased and nearer to .5. It indicates that liquidityposition of the company is increased and hence the firm has enough cash and bankbalances to meet its short-term liabilities.LEVERAGE RATIO LEVERAGE RATIO is also called as capital structure ratio. It relates to the studyof various types of capital structure of firm. The long- term solvency of a company canbe examined by using leverages or capital structure ratios. These ratios are for long-termcreditors to judge the long-term financial strength of the company. The aspects that aremainly considered for this are: 1. Ability to repay the principal when due and 2. Regular payment of the interest. BABASAB PATIL 58
  • 59. BDK Process Control Pvt. Ltd.THE DIFFERENT LEVERAGE RATIO ARE: 1. Debt Ratio 2. Debt Equity Ratio 3. Proprietary Ratio1) DEBT RATIO:It expresses out side liabilities i.e. both long -term and short-term in relation to totalcapitalization of firm.It is calculated as follows:= Total Debt ______________ Total AssetsGenerally creditors will prefer low debt ratio, since lower the ratio, higher the cautionagainst creditors losses in the event of liquidation.Conversely, owners may prefer high debt ratio either  To magnify earnings or  Because issuing new share means giving up some degree of controlBut a high debt ratio may create problem with respect to future financing since creditorsmay reluctant to lend the firm more money unless equity base is increased. DEBT RATIO (Amount in Lakhs)Year 2003-04 2004-2005 2005-2006Total Debt 291.98 262.39 515.56Total Assets 1146.84 1174.41 1649.72Debt Ratio .254 .223 .312SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 59
  • 60. BDK Process Control Pvt. Ltd. Debt Ratio 0.35 0.312 0.3 0.254 Ratio in Times 0.25 0.223 0.2 Debt Ratio 0.15 0.1 0.05 0 2003-04 2004-05 2005-06 YearInterpretation: Ratio is fluctuating in between the range of .223 to .312 during theperiod of study. In the year 2003-04 the ratio is .254 and it is decreased to .223 in2004-05. Again the ratio is increased to .312 in the year 2005-06. Which indicates thatlenders are financing one-third of total assets and remaining two- third is financed byowners ofthe firm, indicating that firm is more dependent on owners fund to meet its long-termliabilities.2) DEBT-EQUITY RATIO It measures the relation between debt and equity in the capital structure of the firm.In other word, This ratio shows the relationship between the borrowed capital andowner’s capital. This ratio shows relative claim of the creditors and shareholders againstthe assets of the company. It is expressed as: = Long-term Debt __________________ Shareholders Equity BABASAB PATIL 60
  • 61. BDK Process Control Pvt. Ltd. Generally higher the ratio greater is the possibility of increasing the ROR to equity& vice versa. A high debt equity ratio may be adopted to take advantage of cheaper debt capital. The ratio indicates the extent to which the firm depends upon out side for itsexistence. The ratio provides margin of safety to the creditors. It tells owners the extent towhich they can gain benefits of maintaining control with a limit investment. DEBT-EQUITY RATIO (Amount in Lakhs)Year 2003-04 2004-2005 2005-2006Borrowings 286.60 247.71 439.49Total Capital Employed 689.46 787.40 1185.00Debt-Equity Ratio .415 .314 .370SOURCE: ANNUAL REPORTS OF COMPANY Debt-Equity Ratio 0.45 0.415 0.4 0.37 0.35 0.314 Ratio in Times 0.3 0.25 Debt-Equity Ratio 0.2 0.15 0.1 0.05 0 2003-04 2004-05 2005-06 YearInterpretation: The ratio is fluctuating in between the range of .314 to .415 during theperiod of study. Which indicates that the Company depends more on internal sources than BABASAB PATIL 61
  • 62. BDK Process Control Pvt. Ltd.on external sources i.e. it indicates that company depends upon insiders i.e. onshareholders fund & and it also indicates that company is having sound financial position.3) PROPRITORY RATIO:It establishes relationship between the propitiator or shareholders funds & total tangibleassets.It may be expressed as: Proprietary Ratio=Proprietor’s Funds Total AssetsThe ratio indicates properties stake in total assets. Higher the ratio lowers the risk andlower the ratio higher the risk. Debt –equity ratio & current ratio affects the proprietaryratio. PROPRITORY RATIO (Amount in Lakhs)Year 2003-04 2004-2005 2005-2006Shareholders funds 441.75 539.69 745.51Total Assets 1146.84 1174.41 1649.72Proprietary Ratio .385 .4595 .4519SOURCE: ANNUAL REPORTS OF COMPANY BABASAB PATIL 62
  • 63. BDK Process Control Pvt. Ltd. Proprietary Ratio 0.48 0.4595 0.46 0.4519 0.44 Ratio in Times 0.42 Proprietary Ratio 0.4 0.385 0.38 0.36 0.34 2003-04 2004-05 2005-06 YearInterpretation: The ratio is .34 in the year 2003-04 and it is increased to .459 in2004-05. But in the year 2005-06 the ratio is decreased to .451, which is quite normalhence negligible. It indicates that company’s dependence on shareholders fund isincreasing in year by year. It shows that the financial position of the company is strong. FINDINGS • Gross profit and net profits are increased during the period of study, which indicates that company’s efficient management in manufacturing and trading operations. • Profitability of the company is increasing in all the three subsequent years hence the return on investment, return on equity, return on assets and EPS is also increasing. Which indicates the company’s efficient management, in utilization of its resources to earn profit. BABASAB PATIL 63
  • 64. BDK Process Control Pvt. Ltd.• Inventory turnover ratio of B.D.K.PC is increasing year by year, and hence the inventory conversation period is decreased in all the three years. Which indicates the inventories are converted into sales more rapidly during the period of study.• Debtor’s collection period is fluctuating in between 47 days to 71 days during the period of study. This period is quite satisfactory as per the company’s credit policy.• Creditors Turnover Ratio is moderate and the creditors’ payment period is also quite normal i.e. in the year 2005-06 creditors’ turnover ratio is 3.507% creditor payment period is 105 days. In 2005-06 firm enjoyed more credit period as compared to the year 2004-05.• In all the three years the fixed assets turnover ratio is increased. Which indicates that fixed assets are properly utilized i.e. there is a better efficiency in utilization of fixed assets.• Current assets turnover ratio is increased in first two years but in 2005-06 there is a slight decrease in the ratio due to the increase of current assets.• In 2003-04 and 2004-05 financial ratios are moderate in nature. But in 2005-06 financial ratios are quite high i.e. current ratio is 2.744 and quick ratio is 1.819. In 2005-06 the liquidity position of the firm is quite high due to increase in investments in current assets.• Cash ratio is good as compared to the standard ratio, which indicates the firm has enough cash and bank balances to meet its short-term liabilities. BABASAB PATIL 64
  • 65. BDK Process Control Pvt. Ltd.• In 2005-06 the debt ratio is .312 and Debt-equity ratio is .37, which indicates that lenders are financing one-third of total capital and remaining two- third is financed by owners of the firm, indicating that firm is more dependent on owners fund to meet its long-term liabilities. Hence company is financially strong.• Proprietary ratio is fluctuating in between the range .358 to .459. It indicates that company’s dependence on shareholders fund is increased year by year. It shows that the financial position of the company is increasing year by year.. SUGGESTIONS• Since the B.D.K. Process Control Pvt. Ltd is earning the profit year by year, this will attracts many investors. Hence the company should concentrate on the expansion of the business and also they should contribute towards the social overheads for the welfare of the society. BABASAB PATIL 65
  • 66. BDK Process Control Pvt. Ltd.• Company instead of depending fully on internal funds, it can also study the feasibility of borrowing funds from external sources, so it can still expand its production capacity considering the demand.• Company should improve its credit policy for the better management of credit and to earn more profit.• Liquidity position of the company is quite high; hence it should decrease investments in current assets. Hence they have to modify their credit policy to reduce debtors. And also they should think about these short-term investments in others such as expansion of the business. CONCLUSIONFrom the analysis of financial statements it is clear that B.D.K. Process Control Pvt.Ltd. Have been incurring profit during the period of study. Although company has tostill increase its credit policy and also decrease its investments in current assets. This BABASAB PATIL 66
  • 67. BDK Process Control Pvt. Ltd.will gives the new opportunities to the company like expansion of the business. Withall these recommendations company can improve its profitability. BABASAB PATIL 67
  • 68. BDK Process Control Pvt. Ltd.Contents: Bibliography BABASAB PATIL 68
  • 69. BDK Process Control Pvt. Ltd. BIBILIOGRAPHY I.M. Pandey – Financial Management. Vikas Publishing House Pvt. Ltd. M.Y. Khan and P. K. Jain – Financial Management. Tata Megraw –Hill Publishing company Ltd. New Delhi. Khan and Jain – Management and Accounting. Himalaya publishing house Pvt. Ltd. Web Site: www.bdkindia.com BABASAB PATIL 69